Float of Lloyds offshoot TSB bodes well for NAB's chances of selling banks

National Australia Bank's prospects of selling its troubled British banking business have received a boost after a strong investor response to the float of rival lender TSB.

TSB, an offshoot of Lloyds Banking Group, made a bumper UK sharemarket debut on Friday night, with its shares jumping 12 per cent, in the latest sign the initial public offering market for UK banks is heating up.

The listing is significant for NAB because TSB is a similar size to NAB's Clydesdale and Yorkshire banks, which have dragged on profits and may be sold over the coming year, according to analysts.

While Lloyds was forced to sell the £500 million stake in TSB at a discount to its book value, suggesting NAB would have to do the same, it highlights the improving conditions in Britain's banking industry.

An investment analyst at Watermark Funds Management, Omkar Joshi, said the TSB float was ''quite positive'' for NAB's hopes of offloading Clydesdale, as it showed solid investor demand for new retail banking stocks.

However, investor demand for bank shares could also be tested as more British banks eye listings in response to the improving economy.

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Virgin Money, RBS-owned Williams and Glyn, and Santander UK are among various banks said to be planning floats.

''There's a few retail banking assets on the block, and that's a bit of an issue for NAB,'' Mr Joshi said.

Lloyds last week increased the price at which it was selling TSB shares in response to strong demand from investors.

Credit Suisse analyst Jarrod Martin said this was positive for NAB, but a more promising sign was the increase in the share of the business that was floated.

''The big positive is there is enough demand for them to decide that instead of floating 25 per cent, they will float 38.5 per cent. We see this as more significant than the price,'' he said.

At NAB's results last month chief executive Cameron Clyne said the bank remained open to an exit from Britain, but its key focus was on running Clydesdale well.

While the float bodes well for NAB, there are also some significant differences between its UK business and TSB.

Clydesdale is more exposed to higher-risk commercial property lending, which could squeeze the price NAB can get for the assets.

It is also unlikely NAB could list Clydesdale before late this year or early next, putting it behind other banks rushing to float. Mr Martin said NAB was unlikely to float its British banking operations until at least the first half of next year.

''They're not going to do it before the Scottish referendum in September. They probably want to get another set of results from Clydesdale into the market,'' he said.

Another hurdle is the fact that Clydesdale still faces the risk it may be forced to pay further compensation to victims of a mis-selling scandal.

Lloyds has pledged to indemnify TSB against such claims, but investors would probably oppose NAB doing the same for Clydesdale.

Macquarie analyst Mike Wiblin said the partial float of Lloyds was an encouraging sign for NAB, but agreed any float was unlikely to occur until early next year.

''It's a step in the right direction. It shows there's demand for small bank equity,'' Mr Wiblin said.